TY - JOUR T1 - The Robustness of the Volatility Factor: <em>Linear versus Nonlinear Factor Model</em> JF - The Journal of Index Investing SP - 75 LP - 88 DO - 10.3905/jii.2017.8.3.075 VL - 8 IS - 3 AU - Carmine De Franco AU - Massimo Guidolin AU - Bruno Monnier Y1 - 2017/11/30 UR - https://pm-research.com/content/8/3/75.abstract N2 - This article investigates the trade-off between an extension of the standard three-factor model including a new volatility factor compared to a parsimonious Markov switching model in the context of performance and risk analysis for a set of popular alternative beta strategies. The authors use Bayesian techniques to estimate a two-state (bull and bear) regime-switching model. Over the period of 1969–2014, they show that the inclusion of a time-varying feature in the standard model is as good as the extension of the volatility factor, at least in explaining the alphas for some alternative beta strategies.TOPICS: Factor-based models, statistical methods, volatility measures ER -